Bitcoin and altcoins saw a 50% decline in their prices, marking 3-12-2020 the day the crypto market plummeted in BTC price since 2013. However, this move was led by fear which drove investors to cash, inducing a deep liquidity crunch.
And bitcoin wasn’t spared either as a decline in the crypto asset’s price corresponded with the extensive financial market's upset during the COVID-19 pandemic that saw S&P 500 and Dow Jones crashing 10%, its biggest one-day slide since 1987.
Bitcoin could very well be hit the hardest from the size and scope deployed leverage that led to a cascade of liquidations.
Leverage plays an important role here with entities like BitMEX and Binance offering leverage of up to 100 and 125x respectively. Not just by advanced traders, leverage is also used by crypto miners that were offered backed loans of cash by lenders and for bitcoin deposits.
Excessive leverage made accessible to investors in the retail market in an environment that isn't controlled may be a threatening sign for assets. With crypto exchange Coinbase noting in their latest blog argues that “as crypto matures, both externally from regulators increasing controls and internally from industry led initiatives.”
Retail Brokerage Buying the Dip
On Coinbase, this price drop led the exchange to see “record-breaking numbers” in the 48 hours following the event.
In comparison to their last 12-month averages, the exchange saw a gain five times higher in cash and over a billion in crypto deposit totals, a doubled increase in new-user signups, and a gain that is three times higher in trading users, and an increase in total traded volume.
Kraken also recorded an increase of 83% in sign-ups along with Japanese-based BitBank that saw a jump of 40% in its weekly account registration.
All of this suggests, “customers of our retail brokerage were buyers during the drop, and Bitcoin was the clear favorite,” said Coinbase.
Besides, Bitcoin, Ethereum and XRP saw the most traction along with Tezos (XTZ), Chainlink (LINK), Litecoin (LTC), and Bitcoin Cash (BCH).
“Bitcoin was created for a moment like this”
However, since the drop, Bitcoin and broad crypto markets have rallied while equities continue to drop. This behavior was seen with Coinbase customers as well.
Coinbase noted that the same thing happened with gold in the 2008 financial crisis when its price initially plummeted over thirty percent. And this wasn’t because bullion is a bad store of value but because of the liquidity crisis. The precious metal then went on to rally 3x over the next three years.
“Bitcoin was created for a moment like this,” states Coinbase.
Bitcoin Genesis Block paid homage to the government bailout with the phrase “Chancellor on brink of second bailout for banks,” inscribed into it, that has started to take place this time as well.
“As the US government turns to slashing interest rates, passing large stimulus packages, and infinite quantitative easing, Bitcoin will soon do the opposite in the next Bitcoin halving. The contrast could not be more stark.”
With currency that will only have twenty one million issued and a network that is wholly owned and with clients that are in control with no central authority.
“Bitcoin’s value prop should not be defined by extraneous market dynamics, but rather by its unique properties that make it a potentially attractive store of value.”